Discovering Cryptocurrency Assets In Divorce
There are now almost 35,000 types of cryptocurrencies totaling more than $1 trillion; all with their own independent blockchains. According to some polls, one in five Americans have invested in and/or used, traded, etc. in cryptocurrency, with the highest demographic being men between the ages of 18 and 49, and where 12 bitcoins can translate to more than half a million dollars.
Spouses hiding funds and assets in the form of bitcoin during divorce, known as “financial infidelity,” is becoming an increasingly serious issue in the field of family law, as tracking down these assets has become increasingly complicated. This is especially frightening given that most people do not know a lot about cryptocurrency in general and the law often has a difficult time keeping up with new technology, including digital assets that tend to exist outside the control of centralized banks.
How It Gets Complicated
Some cryptocurrency – such as bitcoin – is held in a brokerage account or trading platform, like Coinbase, and companies like this keep track of the assets, just as a broker at Morgan Stanley would track and document trades.
Yet while bitcoin has a public ledger that stories all of its transactions, made visible to the public, there are what’s known as “privacy tokens,” such as dash, monero, and zcash, which not only operate on their own blockchains, but have anonymity features built into them, including transaction amount, sender, and recipient. This makes it virtually impossible to both trace and obtain information about them.
In addition, individuals can use what are known as “crypto asset mixers,” which work to obfuscate and hide the assets by blending one person’s tokens with other individuals’ assets. They also conceal the identity of the people involved in these transactions. In some cases, this currency can wind up in different wallets on a foreign exchange, in a foreign country, that is not subject to U.S. laws. As a result, it can be difficult-to-impossible to subpoena records.
Still, if one is looking for the right evidence, there are ways to find it: For example, a potential sign is a spouse who earns a significant income, but who does not appear to have many assets. In addition, there are tricks to finding assets in one of the privacy tokens, such as monero, for example, by relying on hardware wallets and computing devices. These assets can be stored “hot” – meaning the wallet is connected to the internet and owners can more easily access and use them – or “cold,” whereby all of the information necessary to access the cryptocurrency (such as passwords) are stored on separate devices (such as a computer or thumb drive-size device) and thus not available on the internet. When crypto is stored “cold,” it may be more difficult to seize, but it is still discoverable because it is visible on the blockchain.
After tracking down the assets, the next challenge is in valuation because there is so much volatility. For example, liquidating one’s stake can one month yield $5,000 one moment, while six months later, these same holdings could be worth close to $1 million. This becomes increasingly complicated if spouses have diversified their crypto portfolio. As a result, some couples may choose to simply take half of an asset as it exists as opposed to deciding to liquidate it during the divorce.
How Family Law Attorneys Gain Access
Tracking this information down not only involves divorce attorneys, but also the experts that they work with in order to ensure that justice is done, such as financial advisors and forensic accountants and investigators, who help during discovery, where “cryptocurrency” needs to be included in the standard request for production of documents. Ideally, this information is found by subpoenaing that information from a centralized crypto exchange; otherwise, a forensic analysis of the spouse’s computer and/or phone – looking for a trail, if you will – is necessary. In court, the only “trail” that’s typically necessary to produce a court order to retrieve funds is some evidence that the crypto is there (for example, the purchase of bitcoins off a website and later transfer to a wallet).
To date, explicit cryptocurrency requests in discovery are seen some – not all – of the time. It is critical that very early on, there is an automatic order requesting preservation of assets, and this includes computer hard drives in order to ensure that nothing is destroyed. Information requested by your attorney will also include “public keys,” which act like account numbers.
Contact an Attorney for Help
Due to constantly evolving forms of digital assets and technology, if you are contemplating divorce, it is essential that you work with attorneys who are not only educated about assets like bitcoin, but who have connections to the right experts and know what to both look at and ask for. Contact our Rockland County divorce attorneys at the Law Office of Robert S. Sunshine, P.C. today to find out more about our services and how to protect yourself during divorce.